The Small Business Administration (SBA) has reopened the Paycheck Protection Program (PPP) for First Draw Loans, starting January 11, 2021. These loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. (Click here for First Draw Loan Application).
The Second Draw PPP Loan, accepting applications beginning on January 13, 2021, allows for eligible borrowers that have previously received a PPP loan to apply for a second loan with the same general loan terms as their First Draw PPP Loan. While the SBA has prioritized PPP borrowers, they did state that all PPP applications and funding must be completed by March 31, 2021. (Click here for: Second Draw Application).
The SBA is prioritizing borrowers as follows:
- Community financial institutions can participate in the first draw on January 11th. This is only open to those businesses that haven’t received any PPP monies.
- Community financial institutions can participate in the second draw on January 13th This is open to those business for the second draw.
- All others. The SBA hasn’t released a date yet, but we expect it to be the following week.
The amount of PPP borrowings a business can apply for is 2½ times the average monthly payroll costs. For restaurants and other food service businesses, they can apply for up to 3½ times the average monthly payroll costs. These computations are similar to those that were used in round 1. Average monthly payroll costs are the average 12 months wages prior to submitting the round 2 application or 2019 average monthly payroll, whichever is higher. Based on recent SBA guidance, it seems that businesses can use 2020 W-2s to support the average monthly payroll. Round 2 borrowing are capped at $2 million for most businesses.
Eligibility for “Round 2” are for businesses that:
- Can demonstrate a 25% or more reduction in gross receipt in any one quarter in 2020 compared to the same quarter in 2019;
- Previously participated in round 1 and has fully utilized round 1 money for only authorized uses;
- Have no more than 300 employees;
- Can demonstrate that they had a financial need for the money as I discussed previously in earlier emails.
Even though the eligibility of businesses are fewer, it should be noted that many of the PPP provisions in round 2 are more lenient to achieve forgiveness such as:
- Businesses can choose a covered period between 8 to 24 weeks to spend the money based on their business’s needs;
- Covered expenses include payroll, certain payroll taxes, rent, utilities and certain interest. In addition, covered expenses have been expanded to include worker protection expenses, certain supplier and operation expenditures and property damage costs.
- PPP money is available to many more tax exempt entities including housing cooperatives;
- There are a few more provisions beyond the scope of this email.
What businesses should be doing right now:
- Businesses should be reviewing their accounting records to determine if they qualify for round 2 PPP money by examining if their gross receipts have decreased by 25% or more in any 2020 quarter.
- Businesses should review the eligibility requirements for PPP money- including your number of employees and eligibility.
- Qualifying businesses that didn’t receive round 1 PPP money are being offered a second chance to PPP money.
- Qualifying businesses should start performing the computations to determine the amount of the round 2 PPP loan. There are rules dealing with affiliated parties as well as businesses operating at separate locations.
- Round 2 applications have been released so start gathering the necessary information that the bank will be requiring to process your application e.g. payroll information and gross receipts support. I have attached the Round 2 PPP application and instructions to help you get a jump start.
- Consider filing for forgiveness for round 1.
- In addition to the PPP money, the law allows certain businesses that suffered a 20% decline in any 2020 quarter gross receipts compared to the comparable 2019 quarter to qualify for the Employee Retention Credit. This credit is up to a $7,000 credit for each employee and it is available for 2 quarters. The credit is used on the businesses quarterly payroll tax returns as a payment and it’s a refundable credit. There are specific rules on this credit, so please discuss this with your Janover Professional.